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To see this, consider the increase in the demand for restaurant meals in the United States that developed during the 1970s. This increase in demand for restaurant meals resulted in an increase in the price of eating out, which increased the profits of restauranteurs. The increase in profits attracted investment capital into the industry. As the output of restaurant meals increased, the increased demand for restaurant workers resulted in higher wages and benefits. This attracted workers into the restaurant industry and away from other industries, where the diminished demand for labor resulted in lower wages and benefits.
CHAPTER REVIEW The interaction of supply and demand is the primary mechanism for the allocations of goods, services, and productive resources in market economies. A market system comprises markets for productive resources and markets for final goods and services. The law of demand states that a change in quantity demanded of a good or service is inversely related to a change in the selling price, other factors (demand determinants) remaining unchanged. Other demand determinants include income, tastes and preferences, prices of related goods and services, number of buyers, and price expectations. The law of demand is illustrated graphically with a demand curve, which slopes downward from left to right, with price on the vertical axis and quantity on the horizontal axis. A change in the quantity demanded of a good, service, or productive resource resulting from a change in the selling price is depicted as a movement along the demand curve. A change in demand for a good or service results from a change in a nonprice demand determinant, other factors held constant, including the price of the good or service under consideration. An increase in per-capita income, for example, results in an increase in the demand for most goods and services and is illustrated as a shift of the demand curve to the right. The law of supply states that a change in quantity supplied of a good or service is directly related to the selling price, other factors (supply determinants) held constant. Other supply determinants include factor costs, technology, prices of other goods the producers can supply, number of firms producing the good or service, price expectations, and weather conditions. The law of supply is illustrated graphically with a supply curve, which slopes upward from left to right with price on the vertical axis and quantity on the horizontal axis. A change in the quantity supplied of a good or service resulting from a change in the selling price is depicted as a movement along the supply curve. A change in supply of a good or service results from a change in some other supply demand determinant, other factors held constant, including the price of the good or service under consideration. An
